The Startup Funding Series: Seed Funding
Welcome back to the Triple Seven Startup Funding Series.
Last week we explored angel investors: who they are and what they can offer to your business. You can read the full post here: https://www.777grp.com/single-post/2017/12/06/The-Startup-Funding-Series-Angel-Investors
This week, we’re discussing seed funding.
This source of capital has risen in popularity over the past few years, helped in part by the rise of crowdfunding platforms such as Crowdcube, as well as the growth of new industries populated by high-growth startups, such as FinTech.
What is seed funding?
Seed funding or seed money is a type of early-stage funding given to a startup business, allowing it to operate until it is revenue-generating by itself.
The word ‘seed’ suggests that this is a very early stage of funding; however, this is not always the case, as established businesses can ofter open up seed rounds to facilitate expansion.
You may have seen news articles floating around referring to companies closing Series A, Series D, etc. These are ways of distinguishing early stage and late stage seed funding rounds, as a company closing a Series D will be at a significantly different level than one just opening their Series A.
Seed funding can come from two main sources:
An angel investor or high net worth individual. A single investor will often ask for an equity stake in the company, as seed funding is a high-risk investment. This is because startup companies seeking seed funding usually do not have existing products or projects to evaluate potential business success.
A crowdfunding round using a platform such as Seedrs or Crowdcube. Companies will often set a funding target, eg. £100,000 and will offer different perks according to the amount of money invested. Members of the public could invest as little as £10 and receive a token of appreciation, or invest a larger amount, eg. £5000, and receive a very small equity stake in the company.
What are the benefits of seed funding?
For startups with no track record or saleable product, seed funding is significantly easier to raise than venture capital. Individual investors are more able and willing to invest in very early stage startups; institutional investors and venture capitalists tend to be more cautious and deal in much bigger numbers.
Crowdfunding rounds are also a great way to raise seed capital, but also to raise awareness of your business. Platforms such as Seedrs and Crowdcube have big marketing budgets and are well-known hubs for members of the public who want to dip their toe into the world of investing, so if your business idea is appealing and you have a clear and demonstrable plan for the seed money, you will draw plenty of interest.
What are the disadvantages of seed funding?
Seed funding presents a high risk for investors, as there is higher chance that startups without a saleable product or service will not become profitable at all or will take a very long time to do so. Therefore, investors will often ask for a significant equity stake to protect themselves.
Crowdfunding rounds can also be a logistical challenge. If you have sought £10,000 in seed funding, and have 1000 investors who have all contributed £10, that’s a lot of different sources of cash! Be sensible about what you offer to investors according to the size of their contributions.
If you’re considering seed funding for your business. get in touch with the Triple Seven Group, as we are currently seeking our next investment. Email firstname.lastname@example.org now or call 020 3371 0121.